Mineral trade policy of resource-rich and developing nations across the
borders often hinge on curbs to preserve the resources for future
domestic use. We need to build it on a strong set of economic rationale.
Minerals, as a set of non-renewable natural resource, are important for
industrial and hence economic progress, of a nation. Though the
industrial progress of a nation has not necessarily been deterred by the
lack of mineral resources within its own geophysical limits; a goal of
ensuring ‘sufficient’ present and future domestic availability appears
to influence policies in many industrializing countries, especially when
they possess substantial mineral wealth in excess of their present
The dilemma often faced by developing (and fast industrializing)
countries is whether to conserve their domestic natural resources,
primarily minerals, for meeting future domestic demand or intertemporaly
shift the production to the present so as to produce surplus to export.
Economic growth hardly matches the geographical mineral endowments
forcing poor countries to think whether it is worth keeping their
resources in-situ for the distant days of demand in their country. The
powerful domestic political lobbies, of the mineral exporters and their
internal consumers, work at cross purposes. Each tries to steer the
Government policies in a direction that ensures their short-term gain.
Domestic policymakers typically respond in two ways:
a. They impose quantitative and/or qualitative restriction on
b. They impose an ‘export tax or duty’ payable across the board,
presumably to deter exports, and earn high ‘rent’ from super-normal
The impacts of these policies are far-reaching. When exports are
restricted in quantitative and qualitative terms or both, it often
hinders fair play of market forces as the domestic prices get delinked
from world prices. In most such cases an import barrier is raised too.
By effectively withholding the national mineral resources from the
global economy and prohibiting the domestic mineral producers from
accessing international market, such domestic policies create an
artificial surplus situation in the country and also distort the global
balance that affects trade.
For the domestic consumer industry, these moves are sometimes a boon and
sometimes not. If the domestic user industry is a nascent one, the
demand does not call for large scale investments and efficient
technology in mining, and the loss due to scale and expertise may not be
very evident. However, the mining industry failing to attract FDI or
global expertise has an adverse effect on the growth of a potentially
large mining industry. If the domestic economy is large and growing, it
gains in terms of bargaining power and enjoys the minerals at lower than
international price. This works as an artificial subsidy.
This policy ‘dilemma’ of resource-rich developing countries may be
approached from a broader perspective and with right economic rationale
which I would like to enumerate as follows, based on my analysis of
a) The resource-rich countries benefit in economic and societal
terms as much from earning the rents its ‘surplus’ exports generate as
by exporting the final output which has gone through several stages of
value addition within the country. Several countries’ data have shown
this. A strong causal linkage appears with the strength of internal
economic and governance systems with growth, rather than with emphasis
on value-addition. The manufactured products do not enjoy ‘scarcity
rent’ that minerals do, when driven by pure demand-supply balances.
While the competitiveness in manufactured goods is driven by industrial
competence, that in mineral is largely dependent on the naturally-set
characteristics and also by Government policies. Conducive and
thoughtful policy-framing catalyzes economic growth. If value-addition
is seen as a route to provide employment to large unskilled mass, it
ends up being counter-productive.
b) Resource curse is having strong direct correlation with weak,
one-sided and exploiting terms in FDI framework that investors take
advantage of, and absence of value-addition is only a poor second in
terms of explaining lack of economic growth despite being rich in
resources. In fact, weak internal systems that dissipate mineral ‘rents’
in unproductive activities or channel them to cross-subsidize weak
sectors, support prolific consumption or futile projects, as well as
unholy nexus of corrupt power-elites and business houses; are directly
responsible for apparent ‘resource-curse’ phenomenon.
c) Exhaustibility is a ‘relative’ concept. As we deplete, we do
find more through better exploration and we include poorer grades of ore
into our resource base owing to technologies coming up to economically
exploit them. Thus, what we think we are saving from the known economic
resources for future, is shown to be a very small fraction of the large
unknown or presently uneconomic base left in-situ. This is bolstered by
the fact that exploration for natural resources is still lacking in
these developing countries. So the restrictive policies actually give up
profits, not shift them.
d) Analysis shows that a country’s economic growth is neither
significantly dependent on its natural resources endowment, nor driven
only by it. Japan and presently China prospers by consuming raw
materials produced in other countries. However, both countries try to
ensure uninterrupted and cheap raw material supply to their domestic
plants to avoid scarcity pangs and to obviate hindrance to growth.
India, having rich resources, may benefit from FDI inflow into mining
sector to explore largely untapped territories and improve productivity
in industry, while framing policies that allow reasonably good volume of
exports as well as harmonious co-supply to domestic plants without
pitting one against the other and apparently trying to choose one option
as panacea for all pangs of growth.
e) It may also be worthwhile to judge future demand potential and likely
future competitiveness of a country’s own resources before embarking on
mindless ‘conservation for future of locals’, only to lose a timely
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